For a Senate hearing on Dec. 13, AWWA, the Association of Metropolitan Water Agencies and the Water Environment Federation submitted a jointly prepared written statement laying out concerns about the state revolving fund (SRF) program and urging Congress to pass a Water Infrastructure Finance and Innovation Act.

The hearing on water infrastructure by the Environment and Public Works Subcommittee on Water and Wildlife addressed the US Environmental Protection Agency’s SRF program. Among those providing oral testimony were James Hanlon, director of the office of wastewater management at USEPA; Gregory DiLoreto, president-elect of the American Society of Civil Engineers; and Van Richey, president and CEO, American Cast Iron Pipe Co.

The American Water Works Association (AWWA), Association of Metropolitan Water Agencies (AMWA) and the Water Environment Federation (WEF) commend the Senate Subcommittee on Water and Wildlife for addressing the challenges and opportunities surrounding our nation’s water infrastructure. High-quality drinking water and wastewater systems are essential to public health, business, and quality of life in the United States. Our organizations and others have documented that our water and wastewater infrastructure is aging and that many communities must begin to increase their levels of investment in the repair and rehabilitation of water infrastructure now in order to protect public health and safety, business continuity and economic viability and to maintain environmental standards. The tenets outlined in this paper provide a path toward truly sustainable water infrastructure for all Americans.

AWWA, AMWA and WEF have long believed that Americans are best served by water systems that are self sustaining through rates and other local charges. However, we recognize that at present, some communities need assistance due to hardship or special economic circumstances. There are also times when communities must access large amounts of funding in a short time period to address major water infrastructure needs. The U.S. Environmental Protection Agency’s latest estimates for needed investment in drinking water and wastewater infrastructure shows that more than $500 billion must be invested through 2028 to maintain our current levels of service. And that only includes projects that would be eligible for state revolving loan fund projects (SRF). According to the US Conference of Mayors, more than 95 percent of water infrastructure funding is historically provided by state and local sources.

In addition to the vital role water infrastructure plays in local economic growth and even sustainability, water infrastructure has significant impacts on the nation’s economy. The U.S. Department of Commerce has estimated that every additional dollar invested in drinking water or wastewater sector results in an increase in revenue for all industries of $2.62. Furthermore, the Department estimates that every additional job in the water sector creates 3.68 jobs in the national economy.

The primary federal role in water infrastructure is one of leadership. Among other things, that role includes demonstrating and encouraging:

• Utility use of modern asset management tools and full-cost pricing;

• Use of rate structures that accommodate low and fixed-income customers as much as
practical;

• Adoption of green technologies and approaches such as water and energy conservation, water reuse, and innovative stormwater management;

• Use of cost-saving watershed and regional strategies, such as system consolidation, regional management, and cooperative approaches among water, wastewater, and highway agencies within a region; and

• Use of advanced procurement and project delivery methods.

However, there is also an important role for the federal government in lowering the cost of capital for water and wastewater investments. Almost 70 percent of American communities use bonds to finance local infrastructure. They pay billions of dollars in interest costs each year. Lowering the cost of borrowing for water and wastewater infrastructure is an important way to leverage local funding and help America rebuild and rehabilitate our aging water infrastructure.

A Novel Approach: The Water Infrastructure Finance and Innovation Act

To lower the cost of infrastructure investments and to increase the availability of lower-cost capital, AWWA, AMWA and WEF urge Congress to enact a “Water Infrastructure Finance and Innovations Act” (WIFIA), modeled after the successful Transportation Infrastructure Finance and Innovations Act (commonly called TIFIA). Such a mechanism could lower the cost of capital for water utilities while having no or little effect on the federal budget deficit. WIFIA would access funds from the U.S. Treasury at Treasury rates and use those funds to support loans and other credit mechanisms for water projects. Such loans would be repaid to the Authority – and thence to the Treasury – with interest.

The Water Infrastructure Finance and Innovations Act would:

• Provide for loans, loan guarantees, and other credit support for large water infrastructure projects and those with national or regional importance. Communities undertaking these projects often find it difficult or impossible to access SRF loans in meaningful amounts, due in part to inadequate capitalization of the SRFs.

• Reduce the cost of leveraging for SRF programs by lending to them directly. WIFIA could lend to those SRF wishing to leverage their capitalization grants at the lowest possible interest rates. This would allow SRFs to make more loans and would increase their ability to offer special assistance to hardship communities if they chose to do so. Currently, about 27 states leverage their SRF programs on the bond markets. WIFIA loans to an SRF would offer another mechanism to accomplish the same goal and make such a practice more attractive to additional states.

WIFIA should enable projects and state SRFs to obtain financing with no more burden than going to traditional credit markets through a streamlined review and application process. Fitch Ratings, a top credit rating agency, calculates that the historical default rate on water bonds is 0.04 percent. Indeed, water service providers are among the most creditworthy and fiscally responsible borrowers in the United States. Moreover, those states that leverage their SRF programs all have AAA or AA bond ratings and no history of defaults, placing them among the strongest credits in the country. Consequently, WIFIA – because it involves loans that are repaid – involves minimal risks and minimal long-term costs to the federal government…

The SRF Program

It is also important for the federal government to continue to directly capitalize state revolving funds, which can be used to both broadly lower the costs of water infrastructure investment and to address the needs of communities in hardship or special circumstances. AWWA, AMWA and WEF propose several enhancements to the State Revolving Fund programs to allow them to better serve our communities:

• Continue support for SRF capitalization. Despite growing needs and the implementation of new drinking water regulations, overall federal investment in the SRF programs has decreased significantly in recent years. We ask that Congress carefully consider the broad and important economic and public health benefits that flow from each dollar of support for the SRF programs.

• Provide states with flexibility in using SRF funds. This should include the ability to address the special needs of hardship communities they identify. This flexibility should also include the ability to use state procurement processes and standards that minimize process and administrative “burdens” for grant recipients and for states themselves.

• Eliminate arbitrage restrictions. Allow SRF programs that issue bonds to keep arbitrage earnings on their invested funds to the extent such earnings are used to support additional investment in water infrastructure. Based on historical market rates, this would provide $200-400 million per year in additional funds for water and wastewater investment.

• Streamline the SRF application. Provide incentives to streamline the SRF loan review process. It can take almost a year to obtain an SRF loan. This deters many communities from using the SRF, and leads them to issue higher-cost municipal bonds instead. Due to the revolving nature of the Fund, increasing the pace of awards through streamlining will help increase the revolving flow of funds, allowing even more projects to get built, and so on into the future.

Americans can be proud of the progress we have made in protecting public health and the environment through past investment in water infrastructure, but we risk a reversal of that progress unless significant new investments are made in our aging water and wastewater systems. AWWA, AMWA, and WEF greatly appreciate your leadership on this issue and we look forward to working with you and other members of the committee in the months ahead to develop bi-partisan, sustainable solutions to the water infrastructure challenges that the country faces.